What is a Property Tax Circuit Breaker?

A property tax circuit breaker is a tax relief program that is designed to prevent property taxes from "overloading" a household's budget by limiting the amount of property taxes paid based upon the total income of the household. The circuit breaker is often considered to be one of the simplest and most efficient means of providing property tax relief to those who need it most.

How does a Property Tax Circuit Breaker work?

Under a property tax circuit breaker the state sets a maximum percentage of income that a household is expected to pay in property taxes. States deliver the benefit of a property tax circuit breaker to taxpayers through either a direct rebate check or through an income tax credit. States also bear the costs of property tax circuit breaker programs. A property tax circuit breaker does not impact the property tax revenue collected by school districts.

How many states have adopted a Property Tax Circuit Breaker?

According to the Center on Budget and Policy Priorities, there are currently 18 states that have adopted a property tax circuit breaker program. In eight states, property tax circuit breakers are available only to senior citizens and people with disabilities and in ten states property tax circuit breakers are available to all households regardless of age or disability status. All 18 states set a maximum income limit above which households do not qualify for the circuit breaker program. These income eligibility limits range from a low of $10,000 in Oregon to a high of $200,000 in New Jersey.

Does New York State currently have a Property Tax Circuit Breaker?

Yes. However, New York's current circuit breaker is extremely modest - eligible taxpayers, those with incomes below $18,000 per year, receive the property tax circuit breaker through a direct credit on their state personal income tax return. The maximum benefit for seniors is $375 and $75 for non-seniors. Currently, 279,000 households receive the credit and the average credit is just $106. According to the New York State Commission on Property Tax Relief, New York State adopted a property tax circuit breaker program in 1978 and the program hasn't been modified in the thirty years since it was first adopted.

Why is a Property Tax Circuit Breaker necessary?

Although the property tax provides a stable funding source for schools, the property tax is considered to be a regressive tax, meaning that property taxes often consume a higher percentage of a lower income household's budget than they do for a higher income household's budget. According to a study by the Institute on Taxation and Economic Policy, in 2002 low-income households paid an average of 3.0 percent of their income in property taxes, middle-income households paid 2.4 percent, and the wealthiest households paid only 0.8 percent. A property tax circuit breaker attempts to add an element of progressivity to the property tax.

Do New Yorkers support a Property Tax Circuit Breaker?

Yes. According to a June 2008 poll conducted by TREND NY, 82% of respondents indicated that they preferred a property tax circuit breaker instead of a cap on the property tax cap levy, which would limit the revenue that schools can raise.

• SURVEY: New Yorkers prefer circuit breaker over tax cap

What about the STAR program?

Unlike a circuit breaker program, which provides property tax relief by limiting the amount of property taxes that are paid based upon household income, the School Tax Relief (STAR) program provides tax relief by providing a partial property tax exemption to homeowners.

The STAR program exempts a portion of the homeowner's assessed value from school property taxes. The Basic STAR exemption, which is available to all homeowners, exempts $30,000 from the full value of a home for school tax purposes. The Enhanced STAR exemption, which is only available to eligible seniors, exempts $56,800 from the full value of a home for school tax purposes. These exemption levels are adjusted upward in counties where the median home value exceeds the statewide median home value. The state reimburses then reimburses the local school districts for the lost revenue from these exemptions.

In 2007 the Governor and the Legislature expanded STAR by creating Middle Class STAR, which provides a rebate check to property taxpayers based on income.

Are there proposals in the NY State Legislature for a new Property Tax Circuit Breaker?

Yes. Assemblywoman Sandy Galef and Senator Betty Little have introduced legislation that would limit the amount of residential property taxes an individual pays based on their annual income. The proposed legislation would create a fairer system by establishing a cap on the maximum real property tax paid by New Yorkers who have a household adjusted gross income of $250,000 or less. Homeowners would receive an income tax credit equal to 70 percent of the taxes paid over an allowed percentage cap. The property tax percentage cap would adjust from 6 to 8 percent, according to income. Taxpayers would continue to receive the Basic STAR exemption or the Enhanced STAR exemption for senior citizens.